The parties’ goal, defined in a Memorandum of Understanding (MOU), is to deliver greater capital efficiency to market participants by combining NYSE Liffe U.S.-traded interest rate futures contracts already cleared by NYPC, fixed income cash and repo trades cleared by the DTCC’s Fixed Income Clearing Corporation (FICC) and interest rate swaps cleared by LCH.Clearnet’s SwapClear service into a single portfolio for purposes of margin netting and offsetting. Netting and recognizing offsetting risk within a multi-product single asset class portfolio would be designed to optimize margin requirements on the combined portfolio.

The existing NYPC and FICC “one-pot” arrangement currently offsets margin requirements for both fixed-income cash and repo trades and futures contracts. NYPC also has an open architecture that allows for connectivity to LCH.Clearnet’s SwapClear platform. The agreement would extend those benefits to one of the fastest growing asset classes, thereby improving efficiency to market participants. The collaborative arrangements, once in place, would also improve transparency and risk mitigation by creating the opportunity for regulators to obtain a single, combined view of portfolio risk for participants across a wider range of asset classes.

As agreed in the MOU, the parties will assess areas where operational and collateral management efficiencies can be achieved through mutually agreed service level arrangements between the organizations in the United States. All parties have also committed to developing an aligned default management process to protect market participants, as well as the development of payment and settlement mechanisms for non-U.S. dollar products. As was the case with the initial “one-pot” margining plan that was first brought to market in March 2011, the final margining structure and agreements would be subject to the review and approval of both the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission. Approvals will also be sought from other regulatory bodies. Additionally, all parties have agreed to develop a joint governance arrangement regarding the combined risk management system and will work together to secure the appropriate regulatory approvals, both in the U.S. and abroad.

“This collaboration presents a tremendous opportunity to provide market participants with a “best-in-class” clearing solution that brings together each of the firms’ expertise and resources across an unrivalled and broad spectrum of interest rate products,” said Daniel Maguire, Head of SwapClear U.S. “Our working groups – with members from all parties – have done tremendous work over recent months reviewing the potential for this offering and we are excited to continue working together.”

“All of our customer firms face new capital requirements from new regulations,” said Michael Bodson, Chief Operating Officer, DTCC. “Being able to offset some of that through innovative margining schemes such as what is currently being offered by FICC and NYPC and enhanced through this alliance with SwapClear can be of great benefit to all our clients…and help regulatory authorities as well.”

“NYPC is already delivering significant savings to our members daily through our current margining process,” said Murray Pozmanter, Interim CEO of NYPC and Managing Director, Clearing Services, DTCC. “Those efficiencies will greatly increase once interest rate swaps from SwapClear are added to the mix.”

“By adding interest rate swaps to the same methodology utilized by market participants for the margining of their cash and futures trades, we believe this collaboration provides the market with a creative solution that addresses many of the industry’s needs around scarcity of capital and delivers a powerful new value proposition for interest rate futures traded on NYSE Liffe U.S.,” said Thomas Callahan, CEO of NYSE Liffe U.S.